Homework SourseFlorida Power and Light has committed to building a solar po
Florida Power and Light has committed to building a solar power plant. JoAnne, an IE working for VAP, has been tasked with evaluating the three current designs. FPL uses an interest rate of 10% and a 20-year horizon.
Design 1: Flat Solar Panels
A field of flat solar panels angled to best catch the sun will yield 2.6 MW of power and will cost $87million initially with first-year operating costs at $2million, growing $250,000 annually. It will produce electricity worth $6.9 million the first year and will increase by 8% each year thereafter.
Design 2: Mechanized Solar Panels
A field of mechanized solar panels rotates from sideto side so that they are always positioned parallel to the suns rays, maximizing the production of electricity. This design will yield 3.1 MW of power andwill cost $101 million initially with first-year operating costs at $2.3 million, growing $300,000 annually. It will produce electricity worth $8.8 million the first year and will increase 8% each year thereafter.
Design 3: Solar Collector Field
This design uses a field of mirrors to focus the suns rays onto a boiler mounted in a tower. The boiler then produces steam and generates electricity the same way a coal fired plant operates. This systemwill yield 3.3 MW of power and will cost $91 million initially with first-year operating costs at $3 million, growing $350,000 annually. It will produce electricity worth $9.7 million the first year and will increase 8% each year thereafter.
Solution
Solution :
The design that would be the most economically smart for FPL to build is found out by calculating the net present value of the three current designs .
Design 1: Flat Solar Panels
Net present value = - $ 87,000,000 + $75,097,699.59
Net present value = - $11,902,300.41
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Design 2: Mechanized Solar Panels
Net present value = - $101,000,000 + $98,955,234.80
NPV = - $2,044,765.20
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Design 3: Solar Collector Field
Net present value = - $91,000,000 + $104,048,423.52
NPV = $13,048,423.52
Hence Design 3 is recommended as it would be the most economically smart for FPL to build because the Net present value is positive .
| Year | cash outflows | Cash inflows | Net cash flows = Cash inflows - cash outflows | Present value of Net cash flow |
| 0 | $87,000,000 | 0 | ||
| 1 | $2,000,000 | $6,900,000 | $4,900,000 | $4,454,545.45 |
| 2 | $2,250,000 | $7,452,000.00 | $5,202,000 | $4,299,173.55 |
| 3 | $2,500,000 | $8,048,160.00 | $5,548,160 | $4,168,414.73 |
| 4 | $2,750,000 | $8,692,012.80 | $5,942,013 | $4,058,474.69 |
| 5 | $3,000,000 | $9,387,373.82 | $6,387,374 | $3,966,056.61 |
| 6 | $3,250,000 | $10,138,363.73 | $6,888,364 | $3,888,301.75 |
| 7 | $3,500,000 | $10,949,432.83 | $7,449,433 | $3,822,736.93 |
| 8 | $3,750,000 | $11,825,387.45 | $8,075,387 | $3,767,227.85 |
| 9 | $4,000,000 | $12,771,418.45 | $8,771,418 | $3,719,937.67 |
| 10 | $4,250,000 | $13,793,131.93 | $9,543,132 | $3,679,290.47 |
| 11 | $4,500,000 | $14,896,582.48 | $10,396,582 | $3,643,938.74 |
| 12 | $4,750,000 | $16,088,309.08 | $11,338,309 | $3,612,734.69 |
| 13 | $5,000,000 | $17,375,373.81 | $12,375,374 | $3,584,704.98 |
| 14 | $5,250,000 | $18,765,403.71 | $13,515,404 | $3,559,028.21 |
| 15 | $5,500,000 | $20,266,636.01 | $14,766,636 | $3,535,015.26 |
| 16 | $5,750,000 | $21,887,966.89 | $16,137,967 | $3,512,091.79 |
| 17 | $6,000,000 | $23,639,004.24 | $17,639,004 | $3,489,782.95 |
| 18 | $6,250,000 | $25,530,124.58 | $19,280,125 | $3,467,699.88 |
| 19 | $6,500,000 | $27,572,534.54 | $21,072,535 | $3,445,527.78 |
| 20 | $6,750,000 | $29,778,337.31 | $23,028,337 | $3,423,015.60 |
| $75,097,699.59 |
